Augur is an application within the Ethereum blockchain, which has as its goal the forecasting of world events. Using the Augur coin (REP), users buy “shares” in particular outcomes, and these investments can then be used as a prediction tool using the concept of the “wisdom of crowds” – the belief that generally, the average opinion held by a large group of people will be far more accurate than a single expert’s opinion.
Augur (REP) Chart
A different application of the blockchain
This is thus a completely different application of the blockchain principle; whereas Bitcoin allows users to use the blockchain to carry out transactions of certain amounts of cryptocurrency, and Ethereum allows users to distribute not only funds, but also software, applications, etc., Augur essentially decentralises betting markets.
In this way, users choose to invest a particular amount of BTC or ETH in a “share” of a specific event – for example the outcome of a presidential election – and, if their chosen outcome actually occurs, they receive a certain amount of money on top of their original bet, depending on the actual probability of this event.
Advantages of Augur
Like on a traditional betting market, users will receive a greater reward if an unlikely prediction comes true. At the same time, once again like on a traditional betting market, the likelihood of a prediction depends on the amount of money people are willing to bet on it. However, Augur has a number of advantages compared to traditional betting markets.
Firstly, Augur is decentralised, which means the market cannot be shut down or corrupted in any way. Because it exists on a blockchain, on many computers at once, it is thus kept secure from attacks or censorship. The decentralised nature of the system also cuts down on fees, since no middleman needs to be paid, and allows users to easily create markets for whichever event they want, without government or other supervision. The system also allows a number of different formats for markets, such as yes/no questions, multiple choice questions and questions about numerical ranges, to ensure maximum flexibility.
At the same time, the blockchain system uses smart contracts to carry out transactions. This ensures that a snippet of code carries out payments in an automated and completely secure manner, with minimal opportunities for fraud.
An additional advantage to the decentralised Augur system is the way it verifies the eventual outcomes of the events users have bet on. This is through a system of REP or Reputation tokens: these are not used to invest in particular markets, but are distributed to users called Reporters, who have the task to accurately verify the outcomes of particular events. Therefore, they are less a currency and more a tool to keep Augur functional and honest.
There are 11 million REP tokens in total, and users holding such a token must report to the outcome of particular events every few weeks. They receive 1/22,000,000 of Augur’s total market fees for this service, but can also be penalised if they fail to report the outcome of particular events or if they report the outcome inaccurately. In this case, their REP tokens are redistributed to users who have a more accurate reporting history.